from the others-might-beg-to-differ dept

Nearly two years ago, we took part in a wider discussion over the question of why there was no billion dollar pure play open source company. Much of the discussion, not surprisingly, focused on Red Hat, seeing as it's the largest of the pure play open source companies, and some had been complaining that it had not yet reached $1 billion in revenue, even as proprietary software players were able to earn much more than that. We highlighted, first, that a direct comparison didn't make any sense, because the business models were so different. The very nature of a company like Red Hat is to shrink the costs one has to pay, such that the market is redefined. Quoting Red Hat's CEO speaking to Glyn Moody:

He said that he did think that Red Hat could get to $5 billion in due course, but that this entailed "replacing $50 billion of revenue" currently enjoyed by other computer companies. What he meant was that to attain that $5 billion of revenue Red Hat would have to displace software that currently costs $50 billion. Selling $50 billion-worth of software -- even if it only costs $5 billion -- is somewhat hard, which is why it will take a while to achieve.

And that's a key point. The markets are very different. But I think there was an even more important point later on in that discussion, which is that it's wrong to think of just "pure play" open source companies as the open source market. It's really the equivalent of defining "the music industry" as solely "the number of CDs sold." That doesn't paint the entire picture at all. Because, as we've seen, as music has become more available (both in authorized and unauthorized means), it's built up the much wider "music industry" in massive ways -- jump-starting huge shifts in the industry.

Similarly, the importance and impact of the "open source market" is not in the companies offering up open source software, but in the companies using open source software to offer amazing things to the world. In other words, I'd argue that companies like IBM, Google and Facebook are clearly "billion dollar open source companies" (actually, much, much more than just a billion) -- because they all use open source software as the key component and key resource in building their business. Just as other parts of the music business used free music to boost their revenue, companies that used open source software built massive new markets and grew their own revenue streams.

Given that, I know there's a lot of folks talking about Red Hat finally actually hitting that $1 billion revenue milestone -- and it is a milestone worth noting. However, I think it's wrong to suggest that Red Hat is therefore the first "billion dollar" open source company. In fact, just as IBM, Facebook and Google really make their money by leveraging open source software to do (and sell) something else, much of Red Hat's revenue really comes in an ancillary manner to the software as well: from selling the service that goes with it. It's great that Red Hat is doing well, and certainly it presents yet another useful data point to argue against those who argue there's no money to be made if your key "product" is free, but I think it's unfair and misleading to claim that it's the first billion dollar open source company.